• When a woman leaves the home and enters the labor market, she will be taxed at her husband's tax rate, even if she earns only the minimum wage. When all taxes and all costs are considered (including the cost of child care and other services she was previously providing as a homemaker), a woman in a middle-income household working a full-time minimum wage job can expect to keep only about 32 cents out of each dollar she earns.
• If the woman's husband dies prematurely, Social Security will provide a modest benefit as long as she stays home and takes care of children; but if she works, the combined effect of direct taxes plus loss of benefits will create a marginal tax rate of 75 percent — leaving her with only 25 cents out of each extra dollar she earns.
• Once the widow's children are grown, Social Security benefits will cease and she will be on her own to fend for herself; but if she previously responded to the system's anti-work incentives, by remaining out of the labor market, she will now have to enter the market without job skills.
• If the woman receives government assistance, she will confront a newly reformed system that is supposed to encourage work; however, when explicit taxes are combined with loss of benefits, her marginal tax rate will be about 72 percent — leaving her with only 28 cents out of each dollar of wage income.
• When the woman reaches the retirement age she will once again qualify for Social Security benefits, but if she tries to supplement those benefits with wage income, special taxes on the elderly will make her marginal tax rate 50 percent higher than young people earning the same wage income.
Unfair Work Rules. Of course, all the public policies that burden women can also in principle burden men. But because of the nature of work and family life, they are much less likely to do so. Here are some other examples:
• Both men and women workers pay the same unemployment insurance taxes, but because women are more likely to work part-time and because they voluntarily move in and out of the labor market more frequently (for example, to raise children or care for a parent), they are less likely to receive any benefits in return for the taxes they pay.
• If a woman temporarily leaves the work force to raise children and then returns years later, she will lose most of the credits she accrued and run the risk of being ineligible for Social Security disability benefits.
• Because Social Security taxes are levied on all earnings until capped at a high income level, dual-earner households generally pay considerably more in taxes than single-earner households, but they will get only a minimal increase in Social Security benefits.
• Because women live longer than men, they will be more burdened by the income taxes paid on Social Security benefits, which will cause many middle-income seniors to forfeit more than half of their private pension income and IRA withdrawals.
Unfair Employee Benefit Policies. Women are adversely affected by public policies in other ways. In contrast to some other developed countries, the United States encourages employers rather than government to provide such benefits as health insurance and pensions. Our private employee benefits system is not the result of free market forces, however. Instead, it has been shaped and molded by federal law designed to accommodate a full-time worker with a stay-at-home spouse and penalize any other arrangement. For example:
• Because they are more likely to work part-time, women are less likely to qualify for employer-provided benefits.
• Because they move from job to job and in and out of the labor market more frequently than men, women are more likely to be burdened by employee benefit programs that penalize job switching (e.g., lack of vesting in a pension plan).
• When people acquire health insurance and save for retirement on their own (not through an employer), the tax system is far less generous.
Couples with two full-time working adults are disadvantaged in other ways. They often find that they must accept unnecessary, duplicate sets of employee benefits, say, because the wife is unable to opt for higher wages if she forgoes health insurance from her own employer when she is already covered on her husband's employer's plan.
A Better Way. Many changes are needed to bring aging institutions into sync with the way people are living their lives in the 21st century. Here are a few suggestions:
• We need a fairer tax system for two-earner couples, ideally a system that taxes all income at one low rate.
• Employee benefits law should permit flexibility, making it easier for dual-earner couples to obtain higher wages rather than unneeded, duplicate benefits and for part-time workers to accept lower wages in return for more valuable health and retirement benefits.
• We need flexibility in labor law, making it easier for workers (especially parents with young children) to choose alternatives to the traditional 40-hour work week.
• We need to replace the arbitrary limits on retirement savings contributions with a system that is fairer to women who move in and out of the workplace.
• We need a fairer system for providing tax relief for health insurance — especially for single parents who leave the workforce for extended periods of time and for others who must purchase health insurance on their own.
• We need to repeal laws that prevent health and retirement benefits from being portable — so that people are not penalized when they switch jobs.
• We need a completely new approach to the treatment of spouses receiving Social Security retirement benefits and widows receiving survivors' benefits.
Unlike the left wing approach to "women's issues," this agenda does not assume that in order for some people to be successful we must limit the freedom or raise the taxes of others. Instead, we need to liberate women from outdated institutions that unfairly penalize them. Women in our society are capable of making choices that are right for them and they are perfectly capable of living productive, satisfying lives, provided that misguided public policies do not hold them back.
John C. Goodman is President of the Goodman Institute and a Senior Fellow at The Independent Institute. He is the author of the widely acclaimed book, Priceless: Curing the Healthcare Crisis. The Wall Street Journal and National Journal, among other media, have called him the "Father of Health Savings Accounts.”
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